Vinod Nair, Head of Research at Geojit Financial Services feels as the economy is still in the recovery path, RBI would approach normalisation only in a gradual manner.
“We can anticipate a drop in open market operations by RBI in the future to control excess liquidity of the banking system,” he said in an interview to Moneycontrol’s Sunil Shankar Matkar.
Nair, who has around 20 years of experience in equity research, said maintaining the current trend will be a challenge for the market when a consolidation is happening in global market due to tapering, rising bond yields, super cycle of commodities & collapse of Chinese market. Edited Excerpts:-
Q: The RBI will hold a monetary policy meeting next week. Do you expect any change in policy guidance by RBI?
We don’t expect a change in rate & policy stance in the next policy. The inflation rate for August 2021 has fallen below the upper band at 5.3 percent. This may reduce the pressure on the RBI to normalise the monetary policy. The economy is still in the recovery path, RBI would approach normalisation only in a gradual manner.
RBI will also have to watch about a COVID-19 third wave and Federal Reserve & European Central Bank stance in the next policies, which are expected to reverse to normal policy by the mid of 2022. We can anticipate a drop in open market operations in the future to control excess liquidity of the banking system.
Q: Do you think ‘third Covid wave’ is still a risk for the market when the cases are falling with increasing vaccination pace across the country?
There will be a COVID-19 third wave as the market is opened further, however the possibility of a harsh effect is low, given the pace of vaccination. A negative effect of the COVID-19 third wave to the equity market will be fragile.
Q: Auto and Healthcare sectors were only underperformers with around a percent gain in the September quarter and the rest posted decent gains during the quarter. What are the sectors that can hog the limelight in December quarter?
The reopening of the economy & upcoming festive season will benefit sectors like Auto, Banking, Hospitality, Entertainment, Consumer Durables and so on. These sectors which were underperforming can outperform in the coming quarters. Other sectors on which reforms have been implemented such as production-linked incentive (PLI), focus on clean energy and rise of new generation will do well in the market.
Q: The market has given a 13 percent rally in the quarter ended September 30. Do you expect similar kind of return in the December quarter and what would be triggers?
To maintain the current trend will be a challenge when a consolidation is happening in the global market due to tapering, rising bond yields, super cycle of commodities & collapse of Chinese market. However, the triggers for the domestic market will be the long-term benefits from the reforms undertaken in sectors like manufacturing, textile, telecom, power & others and further reopening of the economy. So, we should be stock & sector specific in this quarter.
Q: Quarterly earnings season will begin in the first week of October. What are your broad expectations and will it be better than June quarter?
Q2 will be better than Q1 as it did not have any lock downs globally & domestically. It will be initiated by the IT sector which has a robust outlook. Nifty IT index has corrected by about 8 percent from the recent high, which may continue in the near-term due to consolidation from peak valuation. However, this will revert as positive results are announced. A similar preview is expected on broad results with a positive outlook on stocks & sectors as highlighted above. And a mixed view on sectors to bear high cost of raw materials & low demand like Cement, Auto, Metals & Mining and Logistics.
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